The reliability and usefulness of avoidable cost estimates

6 The reliability and usefulness of avoidable cost estimates

The estimation of the avoidable costs of substance abuse is a two stage process. The first stage is to estimate the total social costs of substance abuse. The second is to estimate the proportions of each category of the total costs which are potentially avoidable. Potential errors arise at each of these two stages.

6.1 Problems with estimating total costs

The following discussion is drawn from Single and Easton (2001). Although the development of international guidelines has done much to increase

comparability of results, there remains a lack of consensus regarding the appropriate methodology to employ in conducting cost estimation studies. The more commonly used Cost-of-Illness (COI) approach has been criticized for including indirect costs such as productivity costs, and some prefer the more conservative “externality” approach championed by US economist Willard Manning. Even among those who employ a COI approach, there are differences regarding the valuation of premature mortality caused by substance abuse. While most studies continue to use the human capital approach (which uses forgone income to estimate forgone productivity), Collins and Lapsley have used the alternative “demographic” approach and several studies use new “willingness-to-pay” techniques. For example, tobacco costs have been estimated using this latter technique by Brian Easton in New Zealand (Easton, 1997) and Claude Jeanrenaud in Switzerland (Jeanrenaud et al, 1999).

In almost all cost studies some cost data are lacking. This is particularly true for developing economies which often lack reliable reporting systems. Even in developed economies, there is often sparse information on many cost elements. For example, estimates of the proportions of the various types of crime attributable to substance abuse can be highly contentious. There tends to be a lack of data on the costs of specific drug- related productivity problems such as absenteeism, job turnover, lower on-the-job productivity, drug-attributable disability and so forth. In some countries, estimates of substance use do not exist for the year under investigation, and must be calculated by interpolating the prevalence from other years. It is frequently difficult to determine from government budgets what proportion of policy costs (prevention, research and law enforcement costs) that can be attributed to particular drugs of abuse. In the absence of complete data, judgments have to be made, because to ignore a cost is in effect to count that cost as zero. To ignore a cost completely is generally more erroneous than making a judgment on the basis of incomplete information

Even when relatively complete data are available, the prevailing methods for estimating economic costs attributable to substance abuse involve a layering of multiple assumptions. For example, estimates of alcohol-attributable morbidity and mortality are required to underpin estimates of productivity costs and costs to the health care system. Morbidity and mortality estimates are made by combining information on (a) the relative risk of consuming alcohol at different levels to various causes of disease and death from Even when relatively complete data are available, the prevailing methods for estimating economic costs attributable to substance abuse involve a layering of multiple assumptions. For example, estimates of alcohol-attributable morbidity and mortality are required to underpin estimates of productivity costs and costs to the health care system. Morbidity and mortality estimates are made by combining information on (a) the relative risk of consuming alcohol at different levels to various causes of disease and death from

• All alcohol-related causes are included in the epidemiological data which form the basis for the cost calculations.

• Where some conditions are related to both alcohol and other causes (for example, injuries stemming from fires involving both smoking and alcohol intoxication), a

correct division of attribution can be made. • Relative risk estimates from studies in one country can be used to estimate

relative risk in another in which there are no local data. • Confounders are adequately controlled for in the studies used to estimate relative

risk. • Age and gender are adequately controlled for in estimating relative risk.

• Since, in most cases, the estimates of relative risk are derived from both morbidity and mortality studies, the risk of morbidity is equivalent to the risk of mortality.

• The reported number of hospitalizations and deaths is accurately counted and complete, and the causes are accurately recorded. It is known, for example, that

some disorders only recently described in the medical literature (such as fetal alcohol syndrome) are not yet being reliably recorded.

Another major reason for caution in interpreting the bottom-line cost estimates concerns changes in the epidemiological database and what is known about the effects of substance abuse. Improvements in diagnostic practices are constantly occurring. For example, the best method currently available for estimating alcohol-attributable morbidity and mortality relies on reliable diagnoses of alcohol-related causes of death and hospitalization. Conditions such as fetal alcohol syndrome have only recently been described and accepted in the medical literature, and such conditions will likely be underreported for some time. More importantly, new research is continually emerging concerning the link between substance abuse and various causes of disease and death. Ten years ago, there were insufficient data to conclude that there is a causal connection between alcohol use and breast cancer. Now the evidence is compelling. Although alcohol accounts for less than 3% of breast cancer fatalities in Canada, the numbers are so large that it represents the third leading cause of alcohol-attributable death among women. A study conducted just one decade earlier would likely have not even included breast cancer in the cost calculations.

6.2 Difficulties in estimating avoidable proportions

Avoidable costs represent a proportion of the total social costs of substance abuse. The process of estimating the value of avoidable costs involves estimating the avoidable proportions of all the individual categories of substance abuse costs and then applying these proportions to the aggregate cost estimates. Thus, all of the above problems and sources of error apply to the estimation of avoidable costs, as well as to the estimation of total costs.

In addition, specific problems arise in estimating the avoidable fractions. If we had access to perfect information, we would need, in addition to robust estimates of all cost elements from a cost estimation study:

• detailed data on risk factors, for example the relative contributions of different levels of drinking, smoking and use of illicit drugs to each problem indicator;

• detailed information on the time lags between engaging in the risky behaviour and the onset of the attributable problem.

Estimation of the feasible minimum for each category of cost raises its own problems. Choosing a feasible minimum may well involve choice of a reference country. It might be possible simply to choose a reference country for each major category of cost – health care, productivity, crime, pollution etc., but in practice there will probably be a whole range of cost sub-categories for which the choice of reference countries will be necessary. Best practice performance for the cost category of one drug may not be achieved, or achievable, in the same country as for another cost category of the same drug. This is likely to be particularly true in relation to illicit drugs, since this term covers a range of diverse drugs with different consumption prevalence, cost impacts and reaction to policy initiatives (for example, to policies to reduce demand or supply).

As mentioned earlier, the unavoidable cost proportions will depend upon the time periods chosen for the analysis, declining over time until some irreducible minimum is reached. Determination of a feasible minimum from international comparisons of outcomes will indicate what this irreducible minimum is likely to be but not the time period taken to achieve it. Given the paucity of information on these time lags, it may be necessary to assume, for all cost categories for a particular drug, a common lag long enough to permit reasonable certainty that all potentially avoidable costs can, in fact, be avoided.

6.3 The benefits of estimating avoidable costs

Even with improvements in methods for estimating drug-related mortality, morbidity and economic costs, and their avoidable components, there are still significant sources of error in the bottom-line estimates of total economic costs caused by substance abuse. Despite these uncertainties, it is considered that it is, for the following reasons, a useful exercise to undertake studies of the avoidable cost of substance abuse.

The first reason is that undertaking the exercise exposes data deficiencies, and forces us to improve the statistical base and our understanding of the processes involved. Economic cost studies help to identify information gaps, research needs and desirable refinements to The first reason is that undertaking the exercise exposes data deficiencies, and forces us to improve the statistical base and our understanding of the processes involved. Economic cost studies help to identify information gaps, research needs and desirable refinements to

The second response concerns quality control. Policy makers need and use cost estimates, explicitly or implicitly, in setting priorities among competing concerns. Despite all of the uncertainties involved, economic cost estimates are frequently used to argue that policies on alcohol and other psychoactive substances should be given a high priority on the public policy agenda. The public is entitled to a quality standard against which individual cost estimation studies can be assessed. Without such a standard there will be a tendency by the advocates for each social problem to overbid, adding in additional items to make their concern a suitably high (even exaggerated) number.

Estimates of the aggregate costs of substance abuse do not, in themselves, indicate the value of the potential returns to drug intervention strategies. The potential returns, which are measured as the avoidable costs of substance abuse, represent more meaningful estimates of potential public policy benefits of interventions. They can, therefore, represent a very useful tool in putting the case for the allocation or greater public resources to drug programs. As an example, Appendix G presents the steps which researchers might have to take when attempting to estimate the value of the social benefits (that is, the reduction in social costs) which would result from a specified reduction in substance abuse, for example a specified reduction in smoking prevalence.

Thirdly, cost estimates help to appropriately target specific problems and policies. It is important to know which aspects of substance abuse involve the greatest economic costs, what specific problems are most likely to occur and in what demographic or geographic groups. The nature and magnitude of costs draw our attention to specific areas which need public attention, or where specific measures may be effective.

Further, the estimation of avoidable costs involves the gathering of information on international experience in the effectiveness of a wide range of drug interventions. As part of the process of estimating avoidable costs, a considerable amount of such information is likely to be gathered and collated, assisting in the design of improved and efficient drug programs. Determination of the avoidable costs proportion does not, of itself, indicate the policy mix by which the irreducible minimum of costs may be achieved. However, inspection of the policy mixes in the jurisdictions representing feasible minimums may give a strong indication of appropriate policies.

Last but not least, the development of improved estimates of the avoidable costs of substance abuse offers the potential, although generally not yet realised, to provide baseline measures for more sophisticated economic analyses to determine which policies and programmes are the most effective in reducing the harm associated with alcohol and other drug use. A combined total cost/avoidable cost study would provide a high proportion of the data requirements for detailed program analysis.

The concept of Gross Domestic Product (GDP) was subject to much the same sources of error and criticisms that aggregate economic cost estimates currently face, and that avoidable cost estimates are likely to face. Despite similar issues of lack of complete data and layering of assumptions, the estimation of GDP has been continually refined and improved, and it has become one of the most useful tools for economic analysis and policy development. Through international cooperation and the development of an on- going process to continually update and refine the methodology, avoidable cost studies can similarly become more reliable over time, and perhaps even become an important cornerstone for comparative analyses of substance abuse policy and interventions much as GDP is today.